It’s tax appeal season and I’ve had several homeowners say that they feel their neighbors are negatively impacting the value of their home for different reasons. Is that the case? Can that be the case? Let’s talk about it.
The homeowners of one property stated that their neighbors are a nuisance. My clients said that one of their neighbors has people coming and going until late in the evening, most evenings. They also complained about there being noisy. Additionally, they claimed that the neighbor located directly behind them is just not a very nice person and is always causing neighborhood trouble.
Meanwhile, in a different neighborhood, a different homeowner claimed that their home was suffering a loss of value due to their neighbor’s home not being kept up and in need of repairs and updates on the exterior. The neighbor’s property is an eye-sore.
Is there merit to these claims? If there’s one thing I’ve learned over the years, it’s to not quickly dismiss my client’s claims as being unreasonable. Part of our work as appraisers is to consider whether situations like this are influencing the market value of the home we are appraising. And I did some research into these two recent situations.
Living next door to someone who clashes with us personality-wise, or in other ways, can be emotionally exhausting. Our home is where we hope to have a measure of peace and quiet. And having a difficult neighbor can at times diminish our view of what we feel the market value of our property is.
In both of these cases, these situations did have a negative impact on the value of the homes in the eyes of the homeowners. Of course, that’s not the same as market value.
Often personal ideas of value are different than market value because the value is in the eyes of the beholder, which does not account for the entire market of potential buyers. Market value must reflect the most probable sales price of a home. Market value, therefore, considers the entire pool of potential buyers of homes that are similar to, and that compete with the property being appraised.
Therefore, when appraising a home-to-market value where these types of claims are made, there must be some market evidence to support the claim. How does an appraiser look for evidence?
When it comes to nuisance neighbors, I try to visit with real estate agents who have recently sold properties that are within close proximity to the property I am appraising, if possible. Perhaps there is more to the story that I am unaware of. I also usually run this type of situation past agents who sell properties in the area to see if they have sold any properties in a similar situation or know of any agents that have.
Most agents are great to visit with about things like this and are generous with their time, at least in my experience. Real estate agents are typically more connected with the public and these types of situations than we appraisers usually are.
Thus far, I have never been able to find a situation where being located next door to someone that was considered a nuisance by the homeowner, in terms of personality clashes or noise issues, had any significant impact on market value. Why?
There are a couple of things that come to mind. First of all, a personality clash between two property owners may not equate to the same tension with another combination of neighbors. In fact, another set of neighbors might get along quite swimmingly! So, the problems are not really related to the property.
Second, when searching for sales that are similar to the property being appraised, I’ve never read agent comments in the Multiple Listing Service (MLS) that state, “This home’s list price is being reduced by ten percent because the neighbors are difficult and crazy.”
Sellers want to capitalize on how much they can sell their homes for. Consequently, they are not likely to disclose any negative information about their property that they do not legally have to disclose. Having a “crazy” neighbor is not on the disclosure list, at least for now.
So, while it may be true that the property value is diminished in the eyes of the homeowner, it’s probably not in the eyes of most buyers.
By the way, when I use the term “crazy” in this post, I’m referring to personality clashes between two individuals and not to a mental condition that one may be suffering from. This article is not intended to poke fun at people that suffer from different illnesses. There are some serious illnesses that may cause a homeowner, or neighbor, to become more sensitive to certain situations.
THE NEIGHBOR’S HOME IS IN POOR CONDITION
What about being located next to a property that has not been adequately maintained? That’s also a tricky question.
Certainly, if a property is located next to a property that reflects a poor condition, it could impact the market value of other homes next to it. But it depends on many factors. Is the condition of the neighbor’s property having an impact on the safety or soundness of the properties around it, or is it just an eye-sore? Is there some characteristic of the property that is creating damage to the properties next to it?
What if the neighbor’s home in poor condition, was purchased and then renovated? Would that then increase the market value of the neighboring homes? Probably not. Why?
Because when developing the market value of a home, appraisers look for other homes that are comparable in terms of condition. If the home next door is not comparable in terms of building characteristics and condition, it’s probably not a good market indicator. That being said, obviously, a home that is located next to other homes that are well maintained is desirable and can have an impact on curb appeal. However, that is sometimes difficult to measure in terms of market value unless the appraiser can find comparable sales in similar situations. Comparable sales are the gold standard for measuring market value. But sometimes, that can be difficult to find.
When appraising a property that may be suffering a loss in value due to an external influence, I will search back years to see if I can find either a comparable sale in a similar situation and then adjust for the changes between that market and the market as of the effective date of the appraisal. Of course, caution is needed because not only do prices of properties change over time but what is desirable to buyers at one point in time may change over the years, depending on different situations, including supply and demand.
If I cannot find a comparable sale that suffers from a similar external influence, I often try looking for a property that may not necessarily be comparable in terms of building characteristics, but that suffers from a similar influence. I may be able to derive a percentage difference by comparing other properties that are comparable to that one in terms of overall property characteristics. That percentage might be able to be used in my report as an adjustment. Even then, caution needs to be exercised because there are different variables to consider.
The long-winded point I am trying to make is that the appraiser will need to find some evidence to support the claims that a neighboring property is really creating a loss in market value to its neighboring properties.
If the home being appraised is listed or was listed for sale, one thing that might indicate an issue is its marketing time and listing history. If its marketing time is considerably longer than other comparable and competing homes that have recently sold, the appraiser will investigate why. Perhaps the property is being negatively influenced by its neighboring property, which might be reflected in the amount of interest a property receives when listed. Of course, this could also be anecdotal, so caution is still needed on the part of the appraiser.
Being located next door to a home that is an eye-sore is one thing. Being located next door to an undesirable commercial property of some kind may be a different story. Sometimes it makes a difference in market value, and sometimes, contrary to common belief, it doesn’t. The appraiser will have to do a lot of research to make a determination one way or another. That’s one reason an appraisal may take longer to complete. That’s also why appraisals are not cheap. They take a lot of work after the inspection is completed. The behind-the-scenes work of appraisers is something that most in the public, including other real estate professionals, are unaware of.
One observation I have made in the past couple of years is that, due to the severe shortage of available homes on the market, some types of negative external influences are less likely to impact a home’s market value in many cases because buyers may be willing to overlook some negative aspects of a home because they want a home, and there’s just not much to choose from right now. And this shortage is not expected to go away anytime soon. Of course, the personal value of the property in the eyes of the new homeowner could lesson in time if they get tired of the same nuisance that bothered the previous owner.
Well, hopefully, you enjoyed my article which again demonstrates why an appraiser’s most probable answer to questions like ‘Is your ‘crazy’ neighbor lowering the value of your home?’, is it depends.
Thanks so much for continuing to read my articles, as well as those of my guest bloggers. In addition to a busy tax appeal season, I have had some time-consuming appraisal work lately. It’s been, well, crazy!
By the way, if you have a “crazy” neighbor story you’d like to tell, feel free to share it below. Just leave out the specific locations and names of the accused, please.
This week, I leave you with some epic work fails. Appraisers aren’t the only ones with tough jobs. My favorites are the tape measure comparisons and the guy hitting the boards with his hammer. This video is mostly not in English. No translation is necessary though. Enjoy! De nada!
Have a great weekend!
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Here are some links to other articles I’ve enjoyed recently! I hope you will also…
I Can’t Get No Housing Satisfaction – Housing Notes by Jonathan Miller
That one super skinny house (eight feet wide) – Sacramento Appraisal Blog
You’re an Appraiser But You’ve Never Heard of Austin v. Miller? Craig Capilla, Esq. Explains All! – The Appraiser’s Advocate Podcast
Understanding The Apprisal Part 1: What is “Adjusted sale price of comparables”? – Birmingham Appraisal Blog
Understanding The Apprisal Part 2: Condition and Quality Ratings – Birmingham Appraisal Blog
What Is a Good Appraiser – APPRAISAL TODAY
March Newsletter – Spring in North Texas- DW Slater Company Blog
For my readers in the CLE area… here are some articles related to news in our local area. I hope you enjoy these also…
Cuyahoga County’s environmental toolkit sets fourth planet-changing sustainability practices –Douglas Guth of Fresh Water Cleveland
The City is Our museum: Explore CLE with LAND studio’s public art tours app – Karen Connely Rise of Fresh Water Cleveland